FRANKFURT, Nov 3 (Reuters) - German auto parts and tyre maker Continental AG said its full year outlook now looked challenging as costs for raw materials such as synthetic rubber and rare earth will be higher than expected.

The Hanover-based company said on Thursday it now sees the burden from raw material costs at more than 900 million euros ($1.2 billion) this year, compared with a previous outlook for about 850 million.

Continental aims to post an adjusted operating profit margin of about 10 percent for 2011, with sales of at least 29.5 billion euros.

“The message at the moment is that our targets are more challenging, but we still expect to reach them,” Chief Financial Officer Wolfgang Schaefer told Reuters in an interview after the company reported third-quarter results.

Shares of Continental were down 1.5 percent at 52.03 euros by 0902 GMT, underperforming the STOXX Europe 600 Automobiles & Parts index, which was down 0.3 percent.

French rival Michelin last week also reaffirmed its full-year targets, despite an uncertain truck tyre market in the fourth quarter, after reporting a 10.6 percent rise in third-quarter sales.

The group’s third-quarter adjusted earnings before interest and tax (EBIT) jumped 53 percent to 743.7 million euros, more than the 713 million euro average estimate in a Reuters poll.

Continental has pushed through more tyre price increases this year than in any other year in its history as it passes on soaring costs to customers, and it is prepared to further hike prices if necessary, Schaefer said.

Synthetic rubber prices have come down a bit in the past two weeks, but there was now an added burden from rare earth prices inflating the cost of some parts such as fuel injector pumps, he said.

“This is a new thing. Prices for rare earths were never a topic before, they were just a small cost position in Continental’s overall business,” he said, adding he expected rare earth costs to weigh on earnings in 2012 as well.

Pricing pressure from rubber will likely ease next year as demand for cars stagnates around the world, he said. ($1 = 0.725 Euros) (Reporting by Maria Sheahan and Alexander Huebner; Editing by David Holmes)